12th April 2019 - The trust in the US economy could weigh down on Gold

Walid Salah Eldin

Active member
The gold came under pressure yesterday on increasing trust in the global economic performance following the drop of US initial jobless claims of the week ending Apr. 5 to 196k which is the lowest level of this indicator since 1969.
The figure underscored the labor market health which is still unfazed of the worries about the global economic slowdown, the Trade War and also the tightening actions the Fed has taken last year sending the Fed fund rate up by 1% to 2.5%.
The US labor market seems having rooms to improve further on The Fed's current adopted patience stance which is boosted by lower inflation pressure.
The US figures came to support the bullish market sentiment and to help the US equities benchmarks to keep their first quarter gains, after the pick-up of the Chinese manufacturing sector in March has already eased the market concerns about the global economic slowdown in the beginning of this quarter.
While the Trade War calming down between US and China can underpin the business spending further, as Trump economic adviser Larry Kudlow said recently that the two sides are getting closer and closer to strike a deal, after he was saying previously that the Trump administration is prepared to keep negotiating with Beijing for weeks or even months!

The gold could not get use of the most recent slide of UST yield which has been spurred by The Fed's signal to hold the interest rate unchanged this year following the FOMC meeting on last Mar. 20.
UST 10yr yield has fallen following that meeting from 2.60% level to reach 2.3665% on last Mar. 27, before recovering the current level close to 2.50% but the gold did not reacted as a mirror of the yield curve and this itself was a dovish sign, while the trust in the US economic expansion was rising.
The minutes of that meeting have shown this week no sign of cutting the interest rate yet, but just holding of it unchanged for what can be considerable period of time can be extended into next year, despite Larry Kudlow's calling for cutting rates immediately by a half percentage point.
The minutes came after New York Fed President John Williams downplayed last week the fear of recession which has been signaled by bond markets, following yield curve inversion.
While Federal Reserve Bank of St. Louis President James Bullard said that he expects growth to bounce back and the Fed's Chief Jerome Powell is still confident in no recession to come this year.

The ECB has maintained also this week its view to hold rates unchanged till the end of this year, including the deposit rate which has been unchanged at -0.4% since 03-10-2016 and it is not expected to be tiered soon as ECB President Mario Draghi's confirmed during the press conference following this meeting which came to just ensure that the economy is still tilting to the downside.

In UK, The Brexit became not expected before next Oct. 31 as May and her European counterparts agreed this week paving the way for the probability of reaching a deal to avert The hard Brexit scenarios which strongly unwanted by the financial and the banking sector as BOE repeated last week.
But this extension can drive the UK economy to longer installing, while the confidence in business investment is still waiting for certainty about Brexit.
As BOE president Mark Carney has mentioned yesterday when he talked about business investment stalling in UK since June 2016 referendum but in the same time, he saw that The risk of no Brexit deal lowered by this extension.
Anyway, this miserable stance should end to something certain about Brexit this year and BOE is looking closer to have interest rate cutting by the end of it to boost confidence and stimulate economy, amid the current lower inflation pressure and the sake for meeting the supply building up at a closer point to avert economic deterioration in UK.
While UK labor market will be in need for boosting demand and the Brexit outcome can take time to reward the economy by new created jobs, if it is to do!

XAUUSD-Daily-12-04-2019 07-54-25 ص.jpg

XAUUSD is now trading near $1293, after forming another lower high at $1310.59 to come below $1324.52 which has been formed on Last Mar. 25 below last Feb Peak at $1346.73
Forming a lower high at $1310.59 drove the gold below its daily SMA50, but it is still underpinned over longer range by continued being above its daily SMA100 and its daily SMA200.
XAUUSD is trading now in its fourth day in a row above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today $1283.
The daily chart of XAUUSD shows that its RSI-14 is now inside the neutral region reading 45.769.
XAUUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is also having now its main line inside its neutral territory reading 50.912 leading to the downside its signal line which is higher in the same region at 69.389, after negative crossover just below its overbought area above 80.

Important levels: Daily SMA50 @ $1306, Daily SMA100 @ $1286 and Daily SMA200 @ $1249
The Closest Experienced S&R:
S1: $1280.89
S2: $1276.65
S3: $1253.46
R1: $1310.59
R2: $1326.27
R3: $1346.73

Have a good day

Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din
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